Order flow from broker crossing networks (BCNs) will not shift
to systematic internalisers (SIs)
immediately following MiFID II
implementation, according to market participants.

Speaking at The TRADE’s MiFID
II Checklist event, a panel discussing changes to trading venues
explained to delegates the liquidity
from BCNs will likely be spread
across multiple venues.

“Once BCNs are banned, it will
leave a big hole in liquidity,” said
Tom Stenhouse, head of products at
the London Stock Exchange Group.

“It’s unclear how much flow willgo to other venues and the difficultyis working out which of those venuesare relevant and whether the liquid-ity pools are pre-matched,” he added.

MiFID II will see multiple newvenues become available including

SIs, although market participants
have predicted the regime and
additional venues will cause greater
fragmentation.

Certain investment banks are alsoregistering multiple SI platformsfor different internal purposes, forexample different desks offeringliquidity in cash or derivativeproducts.Michael Horan, head of trading atPershing BNY Mellon, added onceBCNs are broken up, order flow willlikely be rehoused as an M TF butmost banks do not want to do that.

“That flow has to go somewhere
and some will naturally migrate
to lit order books, temporarily at
least. The break up of BCNs isn’t
about what choice the banks have,
it’s about what happens to that
mammoth piece of liquidity once it
is broken up,” he told delegates.

Matthew McLoughlin, head of
trading at Liontrust, agreed and
added SIs will not replace BCNs
once MiFID II is implemented.

“People underestimate the flow
that goes through electronic market
makers. There’s a place for SIs but
with all the new venues coming
out of MiFID II, no one venue will
replace BCNs,” he said.